“A raise is only a raise for thirty days; after that, it’s just your salary.”

– David Russo, VP of Human Resources at SAS Institute

This is one of my favorite quotes from the book Hidden Value. It explains why money by itself doesn’t motivate high performance. Money by itself can only motivate the quest for more money. A raise is only a raise for thirty days; after that, it’s just your salary.

But, even in startups, financial incentives and HR practices often treat us like economic agents:

“Consider the implicit values conveyed in the modern management practices adopted by many companies. Most firms today emphasize, among other things, the employee’s responsibility for being career resilient, employment at will and no-fault dismissal, pay for performance, downsizing to cut costs, and maximizing shareholder value above all else. What is the message any sentient employee takes from these practices? Pursue what is best for you, not the firm or the customer, adopt a free-agent mentality, and do not invest any more in the firm than it is willing to invest in you. The underlying values are crystal clear, even if they are never expressed in a formal way. In this sense, arguments by managers that value statements are irrelevant or inappropriate miss the point: All organizations have values; the only question is how explicit they are about them.

“And what happens when employees behave in accordance with these values? First, a rational employee is not likely to exert much effort in activities beyond what he or she is explicitly rewarded for. A ‘show me the money’ mood prevails. Second, a smart employee will be constantly alert for new and better job opportunities in other organizations—loyalty is for fools. Third, unless cooperation is explicitly monitored and rewarded, teamwork is viewed as optional… To resolve some of these problems, management’s job is to design ever more sophisticated control and incentive systems to ensure that the necessary teamwork occurs and that the loss of intellectual capital is minimized.”

The problem isn’t that money is a weak motivator. The problem is that money is a terribly strong motivator. By itself, money motivates the wrong people to do the wrong things in the quest for more money.

Organizing around values, not value

The authors, Charles A. O’Reilly III and Jeffrey Pfeffer, both from Stanford’s Graduate School of Business, studied how eight companies, from Men’s Wearhouse to Cisco, ignore the pernicious assumption that compensation should be the foundation for management systems:

“First, each of these companies has a clear, well-articulated set of values that are widely shared and act as the foundation for the management practices that… provide a basis for the company’s competitive success. [e.g. Southwest’s “Work should be fun… it can be play… enjoy it.”]

“Second, each of these organizations has a remarkable degree of alignment and consistency in the people-centered practices that express its core values. [e.g. Southwest: “We hire happy people.”]

“Finally, the senior managers in these firms, not just the founders or the CEO, are leaders whose primary role is to ensure that the values are maintained and constantly made real to all of the people who work in the organization… The senior managers in each of these companies see their roles not as managing the day-to-day business or even as making decisions about grand strategy but as setting and reinforcing the vision, values, and culture of the organization. Dennis Bakke at AES [a $2B company] claims that he made only two decisions in 1998, one of which was not to write a book on the company.”

Extraordinary results with ordinary people

The book’s subtitle is “How great companies achieve extraordinary results with ordinary people.”

Every rational company in the world is trying to hire the best people in the world. And all but one of them will fail at this task. There can only be one company with the best people. Hiring the best is a failing strategy.

Awesome. Thanks for sharing this—especially all the quotes. We have “experienced” this first hand and I think sustainable companies are the ones that are built to thrive with B players. We have seen that B players deliver more in the long run that A players can/do and it’s just impossible to retain A players and keep them motivated. One cannot generalize it fully but on aggregate it’s true most of the time.

I should have elaborated. I didn’t mean to say that you should or can build a business with all B players. Also I think the A / B / C / D classification is also somewhat misleading—it leads us to relate them to grades in school where the B graders are definitely inferior to the A graders.

I think Best and Good is a better way of thinking about it. I think it’s possible to build, scale and sustain a business with few Best and mainly Good players. Good players are stable and more loyal and eventually they get better but they do deliver what the business requires and their consistency and loyalty makes up for the difference between the Good and the Best players. Also one needs to have a balance of Best and Good players where the Best can stay ahead of competitors as the Good players support by executing consistently.

I don’t know if there is a right answer for retaining A players—their motivation to stay or leave always varies. I will count out the A players who are driven purely by money versus the entrepreneurial adventure. The ones driven by money are just not good choices anyway.

We have our share of Best and Good but one thing we put ahead of Best or Good is their attitude and their ability to be good team players. I have been in situations where self-proclaimed A players look down on everyone else and it’s a terrible place to be in. So a team that works like a team is another important thing to consider.

One can go on and on about this topic based on experiences—I don’t know if I have the right answer yet because it evolves with every experience.

Maybe I’m talking the crazy-talk here, but… I’m one of those people with no degree, no entrepreneurial aptitude, and very little experience – the sort of person who ends up doing the cruddy jobs such as working in a call centre.

If my boss offered me $1000, or since I’m in the UK, £500, to quit, I wouldn’t be able to take it.

Not for love of the company or a desire to perpetuate my call-centre career – but because, like many people at my level of the employment hierarchy, I don’t have much by way of savings or family to fall back on, and £500 would only cover rent, bills and food for about two or three weeks, which would not be long enough for me to find another job.

I can’t say for certain whether that’s my low-self-esteem talking, or simply a truthful account of my incompetence. But whichever it is, the result is the same – job security, in *any* job, is worth more than $1000 to people like me.

What if, rather than leaving only the most committed employees, that offer actually leaves only the dullest and the most insecure?

On the plus side, us dull insecure people do tend to work our backsides off as we’re terrified of unemployment, rather than the confident employees who, when pressed, will be prepared to stick two fingers up at the boss and say “sod your poxy job”. So hard work and fabulous customer service is achieved.

There’s a couple of other factors in my particular case – disability is probably the most significant one – but I’m not an exception. I think mostly it comes down to aspiration. My childhood friends and I, all C2DE, are generally unable to even *conceive* of a rewarding career, or a lifestyle that is other than hand-to-mouth, in anything other than an abstract sense.

So we do the cruddy jobs and regard not getting fired as a success. Currently I pack CDs for a living. I aspire to being a PA or secretary of some sort, because I’ve got good organisational skills and respond well to being given some objectives and told to Make It So. I have high hopes for getting there before I’m thirty. That probably sounds nuts to someone more used to dealing with “people who want to change the world” but hey, someone has to change the printer cartridges and order the right size of staples. 🙂